This afternoon, a small 100% Cash-Secured Put options position was established in Uber Technologies Inc. (ticker UBER) at the May 21st, 2021 options expiration date and the $42.50 strike price by selling two Puts at $.53 per share when the stock price was $45.80 (7.8% above the strike price). This position had a probability of assignment of 79.3% when this position was established.
Uber announced quarterly earnings yesterday that exceeded expectations. A $600 million charge was taken because of a U.K. reclassification of Uber's labor costs which highlighted the regulatory labor concerns associated with gig economy companies like Uber and the stock tanked by more than 10% today when this position was established. The Covered Calls Advisor believes this is an overreaction and agrees with JPMorgan, Morgan Stanley, and Morningstar who all came out today reiterating their Overweight/Buy ratings and $67 to $74 price targets. Uber has developed a strong brand in both its mobility and delivery segments and the strengthening economy bodes well for its growth potential this year and beyond. Also, concerns in the investment community about Uber's current difficulty in finding drivers will likely be successfully addressed as economic activity continues to rebound from the pandemic shutdowns.
As detailed below for this Uber 100% Cash-Secured Puts position, there is potential for a +1.2% absolute return in 16 days (equivalent to a +28.4% annualized return-on-investment).
Uber Technologies Inc. (UBER) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
05/06/2021 Sold 2 Uber Technologies Inc. May 21st, 2021 $42.50 100% Cash-Secured Put options @ $.53 per share.
The Covered Calls Advisor does not use margin, so the detailed
information on this position and the potential result detailed below
reflect that this position was established using 100% cash
securitization for the two Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $8,395.34
= ($42.50 - $.53) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$104.66
= ($.53 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UBER stock is above $42.50 strike price at the May 21st expiration): +$0.00
= ($42.50 - $42.50) * 200 shares
Total Net Profit (If Uber stock price is out-of-the-money (above $42.50 strike price) at options expiration): +$104.66
= (+$104.66 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If Regeneron is above $440.00 strike price at the March 19th, 2021 options expiration) : +1.2%
= +$104.66/$8,395.34
Annualized Return: +28.4%
= (+$104.66/$8,395.34)*(365/16 days)
The
downside 'breakeven price' at expiration is at $41.97 ($42.50 - $.53),
which is 8.4% below the current market price of $45.80.
